Dive Brief:
- The Container Store said in a regulatory statement that the company would explore scaling back, discontinuing part of all of its operations or seeking bankruptcy protection if a pending equity deal with Beyond falls through. The declaration came on the heels of its Q2 earnings.
- The Container Store on Tuesday reported second quarter consolidated net sales fell 10.5% year over year to $196.6 million. Net sales for the company’s retail segment declined 10.4% to $186.8 million, while its net loss was $16.1 million versus $23.7 million a year ago.
- Comparable store sales fell 12.5% from a year ago. Online sales decreased 13.7% year over year.
Dive Insight:
The Container Store has faced an escalating series of business challenges in recent months.
The retailer recently announced a deal with Beyond, the parent company of Bed Bath & Beyond, Overstock and other home decor brands, where that company will invest $40 million in The Container Store through a strategic partnership.The deal is contingent on The Container Store’s ability to refinance or amend the borrowing terms with its lenders. The company said it’s “actively working” to do so. During a Tuesday earnings call, Chief Financial Officer Jeff Miller said the company has issued a going concern statement while the deal with Beyond is pending.
Now it appears the company has reached a critical point. It said in an Wednesday SEC filing that “the persistently challenging retail environment, including reduced consumer spending in the storage and organization category and increased price sensitivity, has significantly impacted the company’s performance.”
Tim Hynes, Debtwire’s global head of credit research, told Retail Dive in emailed comments on Wednesday that the going concern statement is a required due diligence element of the deal. “As of today, there is no reason to believe the financing from Beyond will not be complete and [the] Container Store will move forward with its partnership with Beyond,” Hynes said.
The Container Store ended its most recent fiscal year with net sales of $847.8 million, down 19% year over year. Same store sales fell nearly 20% from a year ago.
In February, the company laid off 100 people in the face of persistent sales declines. About three months later, The Container Store faced delisting from the New York Stock Exchange when its share price fell out of compliance with average closing price requirements. That same month, it announced it was initiating a review of strategic alternatives for the business.
In September, the company initiated a reverse stock split. Earlier this month, the company adopted a poison pill — formally known as a limited duration stockholder rights plan — to limit the influence of a stockholder that had recently accumulated a large share of stock.
“While we are still contending with a challenging macro and industry backdrop, we are encouraged by the improvements we are seeing in our topline trends as compared to earlier this year,” CEO Satish Malhotra said duringTuesday’s earnings call.
Although Q2 comps declined, Malhotra said the company continues seeing out performance in custom spaces. It also achieved another quarter of sequential improvement in general merchandise. Its custom garage and modular wall storage business remains popular and overall, comp trends for that segment are up 4.5% from a year ago if orders placed but not delivered are included, the company said.
Additionally, Malhotra said efforts to stabilize the business are gaining traction by improving in-stock levels of core SKUs that are resonating with customers and the retailer is succeeding in delivering innovation and newness across its assortment.
“Traffic also improved, partly due to increased promotional activity, which while putting pressure on profitability, allowed us to move slower moving products,” Malhotra said. “This also enabled us to engage more effectively with customers seeking compelling value offerings.”
